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Thursday, 17 June 2010

Listening to the news tonight on Radio 4, I heard the report about the cuts announced by the Danny Alexander on behalf of the government today that total about £2 billion of spending. There are various things included in the mix but I want to focus on the one that seems to have yielded the strongest political reaction. That is the withdrawal of the loan for Sheffield Forgemasters.

The coverage on the news included Labour politicians strongly denouncing the move and claiming Nick Clegg (a Sheffield MP) would not be able to show his face in Sheffield again as well as an interview with the landlord of a local pub who was devastated about the loss of jobs he said this would cause and how he thinks workers at the plant with mortgages today would end up losing their homes.

However this is not true. The measure that was pledged (but crucially not funded) by the previous government in March was for a loan to expand the business. There are also suspicions that it was pledged to win electoral support for Labour in Sheffield just ahead of the election. Irrespective of whether this is true or not what has been "cut" today was a loan to fund expansion. Current jobs at the plant should not be affected by this. Indeed at the end of the news report after all the hyperbole this was made clear by the reporter. Anyone who had tuned out before the end of the report however would have been left with a very different impression.

Let's be clear about this, what was announced today for the Sheffield plant is not a cut. It is a withdrawal of a loan for expansion of a private company.

Also, as Chris Huhne has pointed out, the expansion plan seemed like a good one to him and he sees no reason why it could not be funded from the capital market. I absolutely agree. It is not the job of government to be stepping in to support this expansion of a private firm at a time when we have such a huge deficit, despite the outrage expressed by Labour politicians.

This was to have been a loan, not a grant. A loan, by definition, was intended to have been paid back, and thus could not have added anything to the country's long-term deficit unless the company went bust before paying off the loan. And unless it was to have been an interest-free loan, the interest payments would have been a source of income for the government.

SF saw an opportunity to expand its business, which would have created jobs, and the former government thought that helping SF create jobs would be in the national interest. Why was that a bad thing?

Elizabeth: It's a nice idea but it would tie the money up for years and there is the risk it would never be repaid. You could also use your argument to fund every private sector company that had a good idea. We have a deficit of over £150 billion pounds and we have to get a grip on it. We cannot afford to keep pledging money to private sector companies like this. There have to be savings and areas like this are an obvious first step as far as I am concerned.

I come back to Chris Huhne's point that if it is a good enough expansion idea, private sector finance will support it.

A strange argument to suggest the loan was a cynical attempt to buy labour votes when you know where Forgemasters is located and what a strong Labour seat it is anyway.

Also I wouldn't count on there being no job losses from this. Certainly, there will be no job losses directly and with luck, some of the proposal may be salvaged somehow but making this announcement so publicly is irresponsible. If the cut was necessary, it should have been done as quietly as possible because this will damage Forgemasters in the market and will probably lead to job losses in the future considering how delicate the steel industry in Sheffield is. To make the announcement so publicly suggests to me the cut is nothing more than symbolic posturing (especially considering how little it saves) rather than substance.

Mark - Clegg may have done that, we don't know. However I have quite a long history of criticising people in my own party when I think they are in the wrong and praising other parties and people within them when I think they are right. Ask around, I am not a tribalist blogger by any means.

I was saying last year that we need to start cutting the deficit and decisions like the withdrawal of this loan have to happen. I would be defending it whoever was in power.

One thing Danny Alexander made clear is that when they promised the loan, Labour did not say how they were going to fund it - nor did they say how they were going to fund the rest of the stuff that has been cancelled.I am now tending to the view - supported by increasing amounts of evidence, see what Bob Ainsworth has had to say today - that Labour knew they were going to lose, so scattered fictional largesse around in order that after the election they could go completely over the top accusing the incoming Tory government of slash and burn. The OTT reaction from Labour (hang your head, Mr McShane) is a sign of a party that sees everything as short-term party politics and nothing as long-term interest of the country. And that is one of the reasons they lost.I don't like the Tories but so far they are do far fewer horrible things than I thought they would -even signing up on LGBT. Must be the Lib Dem influence.

"If the cut was necessary, it should have been done as quietly as possible because this will damage Forgemasters in the market and will probably lead to job losses in the future considering how delicate the steel industry in Sheffield is. To make the announcement so publicly suggests to me the cut is nothing more than symbolic posturing (especially considering how little it saves) rather than substance."

Whatever the rights and wrongs of the cancellation of the loan, I think this is a very strange thing to level at the government. The noise in the news about this is from the opposition, not the government, who I'm quite sure would have been perfectly happy to see this announcement go largely unreported! The government is obliged to make announcements like this to the House of Commons, but very little is reported of such details unless someone else kicks up a stink about it.

It would seem that the Lib Dem members of the government are as naive as yourself and have been fully persuaded by Tory's laissez faire economics. The point of the investment,which was negotiated over two years rather than the lead up to the election as you suggest, was to enable the growth of an industry considered strategically important. Germany has been doing this thing for decades - hence the German economic miracle. And the point of using public money to invest - and it was a loan, not a grant, albeit a sub market loan - was because there is no money in private sector to invest. It was a pretty modest Keynesian intervention and would have been the sort of thing Cable and Clegg et al- who used to espouse the good of fiscal stimulus - ought to have supported. Nick Clegg should be ashamed & the Lib Dems, collectively, will be punished for backing what will be seen - right or wrong - as nasty Tory cuts.If I were a Lib Dem (I'm not but I don't support any party) I would be very worried, rather than self satisfied

Even the BBC (on their website) reported that SF had already got loans from Lloyds and Westinghouse Electric Company. The former is part nationalised, the latter is apparently owned by BNFL which is fully nationalised. What the BBC didn't say was how deep the existing financial commitment is.

I agree with NoetiCat. There are two points here.1. The Coalition has agreed that any new nuclear plant built has to be done without subsidy. This loan is for equipment for nuclear power plant and therefore the Coalition is consistent in rejecting it.2. Coalition Climate Change policies aim to encourage 'green' jobs.According to the local labour MP negotiations for the loan were started 3 years ago, so it was just a co-incidence that it was approved by Labour just before the election!